Business may be granted a delay until autumn in respect of “anti-offshore law”

Riga, Latvia, March 2, 2015, 12:00 / Industry News / Jurisdiction: Russian Federation, Source:

The authorities may prolong from 1 April to 1 September the deadline for taxpayers to report assets in foreign companies. Earlier, business representatives asked for a delay for an “anti-offshore law” until the end of 2016.

This potential prolongation of reporting to taxation authorities about foreign assets was announced by “Vedomosti” with reference to three federal officials. According to one of them, the decision on prolongation from 1 April to 1 April was made in advance at the meeting with presidential adviser Andrey Belousov on 26 February.

According to the signed by the president Vladimir Putin “Law on controlled foreign company” (anti-offshore law), until 1 April taxpayers have to report to taxation authorities if they own over 10% of capital shares in controlled foreign company (CFC) (id est companies that are not tax residents in the RF, but controlled by tax residents). An entrepreneur will have to pay profit tax if the share in CFC exceeds 50% and company’s profit amounts to RUB 50 million (in 2016, the correlation will be 25% and RUB 30 million correspondingly). Profit tax in 2015 at the rate of 13% for individuals and 20% for legal entities will have to be paid already in 2016.

According to “Vedomosti”, representatives of businesses asked to postpone the deadline until the end of 2016. By this time, a comprehensive “amnesty on capital returning to Russia” promised by Putin will have to be completed. Besides, as the source close to the Russian Union of Industrials and Entrepreneurs stated the delay regarding the “anti-offshore law” until autumn is a serious cession.

According to the EY partner Marina Belyakova, now report forms for different structures of CFC do not exist, and when they appear businesses will need not less than 3 to 4 months to get the information ready.

The Russian State Duma passed the draft law on anti-offshore measures in November last year, in its strictest to business edition. The primary edition of the draft law suggested that until 2017 owners of 50% shares in CFC will have to pay taxes in Russia. This default threshold of 50% in CFC was planned to be in force within two years of transition period, then in 2017 this threshold was planned to be reduced till 25%. However, in the final edition, the transition period was shrunk to one year: starting with 2016, an owner will have to pay tax if the share in CFC exceeds 25%.

When the Duma passed the law, Deputy Finance Minister Sergey Shatalov reported that in spring the Finance Ministry was determined to introduce amendments of softening nature to the law. At the same time, Deputy Finance Minister stated that ministry’s suggestions would concern the increase of two-years period for liquidation, shutdown and shift of businesses to Russia — “as it is not always possible to manage these processes within two years”. The Finance Ministry also wanted to specify the definition of “operational management of the company” on the basis of which its tax residence will be determined.

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